T-Mobile picks Orange for merger

T-Mobile and Orange are merging their UK operations to create the largest operator in the UK, with ownership split between France Telecom and Deutsche Telekom.

The companies reckon that by merging the networks they can save €4bn running a new operation owned 50:50 by the current parents. That new operation will be the UK's largest network operator: between them T-Mobile and Orange have more than 28 million subscribers, compared with O2's 20 million or so. But to get the savings they'll have to spend between £600m and £800m integrating their businesses.

Speculation about who would buy T-Mobile UK has been rampant, but a merger avoids Deutsche Telekom having to sell at a lower price than it wanted, and expands France Telecom's UK operation without spending any cash upfront.

The biggest savings will come from dismantling redundant network infrastructure, as Orange and T-Mobile have heavily overlapping networks. The deal is expected to complete in November, subject to regulatory scrutiny. The UK will then be down to four network operators: T-Orange, Vodafone, 3 and O2. This is probably a sensible number for a country of this size.

Shops, back office and IT operations will also be cut back. The firm hopes to improve margins by making more sales through its own network of stores and to cut customer service and marketing spending.

The new company will be run by Orange's chief executive Tom Alexander, with Richard Moat from T-Mobile becoming chief operating officer. There is a statement here, and we'll have more details from the conference call shortly. ®